Employer’s Guide to the Arizona Unemployment Insurance Tax

Everything employers need to know about paying Arizona unemployment insurance fees.

If your small company employs people in Arizona, you must pay the Arizona unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In Arizona, the state unemployment insurance levy is simply one of numerous taxes that companies must pay. Other major employer taxes not mentioned here include the federal unemployment insurance tax, as well as state and federal withholding taxes.

Varied states have different UI tax policies and rates. Here are the fundamentals of Arizona’s UI tax.

Register with the Departments of Revenue and Economic Security.

You must register with the Arizona Department of Revenue (DOR) and the Arizona Department of Economic Security as an Arizona small company (DES). You must submit a combined registration to DOR, who will then provide a copy to DES. If DES finds that your company is required to pay UI taxes, they will provide you with an Arizona UI employer account number.

You may sign up online or on paper. Use the AZTaxes.gov website to register online. Use Form JT-1/UC-001, Arizona Joint Tax Application, to register on paper. Blank forms may be downloaded from the DOR website’s Forms section. There is no price to register your firm for UI tax reasons (but transaction privilege tax (TPT) licenses can have fees).

You will need a federal employer identification number to open an Arizona UI tax account (EIN). You may get an EIN by visiting IRS.gov. In most cases, if you apply online, you will obtain your EIN very instantly.

UI Tax Liability Regulations

As an Arizona for-profit employer, you are normally responsible for state unemployment insurance taxes if you:

pay $1,500 in wages in a calendar quarter employ at least one worker for some part of a day in each of 20 different weeks in a calendar year\s acquire the business or part of the business of an employer already subject to unemployment taxes, or\s are required to pay Federal Unemployment Tax because you employ any individuals in any other state or for any other reason.

The first three elements on the list are essentially the same requirements that apply to liability under the Federal Unemployment Tax Act (FUTA). As a result, if you are due under FUTA, you are very certainly also liable for Arizona UI taxes, and vice versa. Different restrictions apply to agricultural (farm) workers, domestic (in-home) workers, and employees of certain (but not all) non-profit organizations, which are not included here.

One piece of good news is that state UI tax payments are often deductible from FUTA taxes.

Wage Structure and Tax Rates

Each employee’s salaries are subject to UI tax up to a certain yearly limit. In recent years, Arizona’s taxable salary base has remained stable at $7,000 per year. However, the quantity is always subject to change.

The state UI tax rate for new employers might also alter from year to year. However, it has remained stable around 2.0% in recent years. Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, whether your company has ever had workers file claims for state unemployment benefits.

Submit UI Tax Reports and Payments Quarterly

UI tax reports and payments are required in Arizona on the last day of the month after the end of each calendar quarter. To put it another way:

If the due date occurs on a weekend or a state holiday, it is moved to the next business day.

You have the option of filing your reports and payments online or on paper. Use the Arizona Unemployment Tax and Wage System to file online (TWS). Use Form UC-018, Unemployment Tax and Wage Report, to file on paper. Every quarter, DES custom-generates and delivers the form to each employer with an active UI tax account. Blank forms may also be downloaded from the DES website.

Online payments may be made concurrently or independently from online report submission. When submitting reports online, you may also choose the paper check payment option, which produces a payment voucher for you to print and submit with your check payment. Online payments are processed via the Automated Clearing House (ACH). Paper payments may be made with a check or money order.

Whether or not wages were received, you must complete a quarterly Unemployment Tax and Wage Report. If you cease sending reports without suspending your account, this will result in delayed reports and higher future tax rates calculated for your account based on predicted earnings. If you do not file, you will face a penalty.

Make a Public Notice (Poster)

You must display a notification (poster) about state unemployment claims in a visible location for all workers. The sign informs employees on when they may be eligible for unemployment benefits. From the DES website, you may download a notice that satisfies all legal requirements (Form POU-003, Notice to Employees).

Employees should not be misclassified as independent contractors.

Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.

Using Payroll Service Providers

You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.